Dodd-Frank swap rules delayed six months for overseas trades

The largest Wall Street banks and foreign-based financial companies won a six-month delay in some swap regulations for overseas trades, even as they must begin registering with U.S. regulators by year-end.

The Commodity Futures Trading Commission, the main U.S. derivatives regulator, voted 4-1 to leave the registration deadline in place while providing a delay until July 12 for capital and other requirements for overseas operations of JPMorgan Chase & Co., Goldman Sachs Group Inc. and other banks, the agency said in a statement today. The CFTC also reduced the number of overseas offices immediately registering.

“There is a lot of work to be done with international regulators,” CFTC Chairman Gary Gensler said in a telephone interview. “It’s my firm belief that if reforms were not to cover the branches and affiliates of U.S. entities either directly or through substituted compliance the public would be left without critical protections.”

The international reach of CFTC swap rules has been one of the most controversial elements of the agency’s Dodd-Frank Act rules, prompting opposition from financial companies including JPMorgan, Goldman Sachs and Barclays Plc. The agency has also faced criticism from European and Asian regulators over the reach of a rule requiring trades to be guaranteed at clearinghouses and traded on exchanges or other platforms.

‘Better Coordination’

“It is important that the commission provide relief for better coordination with regulators in other jurisdictions to avoid unnecessary fragmentation, duplication and conflict among rules for derivatives markets,” Tim Ryan, president and chief executive officer of the Securities Industry and Financial Markets Association, said in a statement. The CFTC is working with international regulators to determine when overseas rules can be used to substitute compliance with Dodd-Frank measures.

Under the exemptive order, foreign-based banks and overseas operations of U.S. banks don’t need to count trades they have with non-U.S. clients to determine whether they cross the threshold requiring registration with the CFTC. The agency also sought additional public comment on how to define U.S. entities and foreign branches of U.S. companies.

“We think it’s appropriate to give some more time on the issues of substituted compliance and the issues as to how the overseas branches and overseas guaranteed affiliates will be regulated with their outwardly facing trades, not the trades facing the U.S.,” Gensler said in the interview.

“Wall Street and its army of lobbyists will use the additional time to continue their war on financial regulation that may hurt their profits, but which will protect the American people from having to bail them out again,” Kelleher said in a statement.